Delhi High Court held In the case of Abhishek Govil & Somya Salwan vs. CIT that the maintenance agreements expressly referred to the payments in question as “Maintenance and service charges”. A plain reading of the agreements also indicates that the said charges were payable as consideration for providing services mentioned therein. Further, TDS was also deducted treating the said charges as payments to a contractor. The Assessees who are signatories to the said agreements cannot be permitted to claim the said agreements to be sham devices and contend that the substance of the maintenance agreements was different from what was expressly recorded therein. Hence, the maintenance charges could not be considered as rental income.

Facts of the Case

The premises bearing no. is owned by the Assessees along with Mrs Parul Govil (wife of Mr Abhishek Govil. Each of them own 1/3rd undivided share in the house property. The said house property has been leased to one M/s NE & MI Consultants & Engg. Pvt. Ltd. The three owners had executed the lease deed, leasing out the said premises at a monthly rent of Rs. 2,37,500/-. In addition, each of the lessors also entered into similar but separate agreements dated 1st April, 2008 for providing maintenance services with respect to the house property. The Assessees claimed that both the receipts, i.e. on account of rent as well as the maintenance charges were liable to be taxed under the head of income from house property. The Assessees also claimed standard deduction under Section 24 on the income by way of rental as well as the receipts on account of maintenance charges. The AO rejected the claim of the Assessees to treat the receipts on account of the maintenance agreement as rental income and taxed the same under the head of income from other sources. Accordingly, the statutory deduction under Section 24 on the maintenance charges was also disallowed by the AO.

Contention of the Assessee

The ld counsel of the assessee submitted that a careful examination of the maintenance agreement entered into by the Assessees would indicate that the services agreed to be rendered by them were not significant. He submitted that in substance, the maintenance charges were rental income. He contended that the form of the agreements should be ignored and if the substance of the maintenance agreements is considered, it would be seen that the said agreements were not for purposes of rendering any service and the consideration payable pursuant to the said agreements, was in reality lease rentals.

Held by CIT (A)

The CIT (A) examined the maintenance agreement entered into by the Assessees pursuant to which they had received the maintenance charges. The CIT (A) also noted that the payer had deducted tax at source on the said charges at the rate as applicable to payments made to contractors. After considering the same, the CIT (A) concluded that the maintenance charges could not be considered as rental income and accordingly upheld the assessment orders.

Held by ITAT

ITAT upheld the order of CIT (A).

Held by High Court

High Court held that it is not open for the assessees to claim that the express terms of agreements entered into by them should be ignored. The maintenance agreements expressly referred to the payments in question as “Maintenance and service charges”. A plain reading of the agreements also indicates that the said charges were payable as consideration for providing services mentioned therein. Further, TDS was also deducted treating the said charges as payments to a contractor. The Assessees who are signatories to the said agreements cannot be permitted to claim the said agreements to be sham devices and contend that the substance of the maintenance agreements was different from what was expressly recorded therein.

The CIT (A) as well as the Tribunal had taken note of the specific covenants of the maintenance agreements entered into by the Assessee and had concluded that the consideration received pursuant to the said agreements could not be treated as rental income. We find no infirmity with the aforesaid view.